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AIG Adjustment May Top
$1.77 Billion Estimate

By

Ian McDonaldStaff Reporter of THE WALL STREET JOURNAL

Updated April 25, 2005 12:01 a.m. ET

NEW YORK -- A report by lawyers for
American International Group Inc.
and its board on accounting irregularities at the giant insurer indicates that the eventual accounting adjustment will be higher than the potential $1.77 billion reduction of book value disclosed late last month, according to people familiar with the matter.

The report, which is expected to be finalized and shared with regulators this week, includes questionable transactions and accounting beyond those AIG disclosed in its news release last month, according to the people. At the time, the firm said adjustments for the errors could shave as much as $1.77 billion, or 2%, off its book value. The report details problems with the company's books that could pass that mark at least modestly, according to the people.

AIG Chief Executive Martin J. Sullivan, Interim Chairman and Lead Director Frank G. Zarb, and Chief Financial Officer Steven J. Bensinger met with several New York state insurance regulators at the New York State Insurance Department's downtown Manhattan offices Friday morning as the newly installed executives seek to wrap up the probes that have knocked billions of dollars off the company's market value, according to people familiar with the matter.

Attorneys representing AIG have acknowledged that the firm intentionally misled New York state regulators earlier this year during a routine examination. The night prior to Friday's meeting, the firm unveiled new initiatives designed to tighten its compliance procedures and corporate governance.

Meantime, the report on AIG's internal investigation was given to the firm's auditors, PricewaterhouseCoopers LLP. Auditors had examined an earlier version of the report, prepared by attorneys at Paul, Weiss, Rifkind, Wharton & Garrison and Simpson Thacher & Bartlett, according to a person close to the company.

An AIG spokesman declined to comment on the report or Friday's meeting with state insurance regulators.